A cryptocurrency exchange is an online marketplace that lets buyers and sellers trade cryptocurrencies in exchange for other cryptocurrencies or fiat currencies. Buyers and sellers can set the price they want to trade their cryptocurrencies for and when a buyer and seller can be matched the exchange acts as an intermediary between the two, facilitating the trade and charging a fee for doing so.
There are 2 types of cryptocurrency exchanges: centralised exchanges (CEX) and decentralised exchanges (DEX).
Similarly to a traditional stock exchange, a CEX is operated by a business or organisation that acts as a middleman to match and fill trades between buyers and sellers. Users deposit their cryptocurrency or fiat currency into the platform to trade it with other market participants. While a user’s funds remain located on the exchange, the organisation or business that hosts the exchange technically has control of these funds.
Examples of CEXes are CoinSpot, Independent Reserve, Zipmex, BTC Markets and Coinbase.
A DEX is not hosted by a central organisation, business or entity and typically leverages blockchain technology to enable buyers and sellers to trade their cryptocurrencies ‘on-chain’. This allows users to maintain full control over their funds whilst engaging in peer-to-peer trading directly with other market participants thus typically involving cheaper fees. Whilst considered a more secure method of exchanging cryptocurrencies, DEXes are often less user-friendly and typically don’t have as much liquidity as CEX.
Examples of DEXes are Uniswap, Balancer, Bancor and KyberSwap.
A cryptocurrency broker also facilitates cryptocurrency trading between buyers and sellers, but instead of buyers and sellers setting the prices, the broker sets the prices instead. This somewhat simplifies the process for buyers and sellers (especially for newcomers) but the broker will typically charge a higher fee for the convenience.
These days, many cryptocurrency brokerages have digitised their service and offer an online platform for buyers and sellers to trade cryptocurrencies. Many also facilitate over-the-counter (OTC) services which deliver a more personalised experience for the buyer or seller providing additional services such as investment advice, a dedicated broker and often more liquidity.
OTC brokerage services charge a premium and often have minimum limits on trade values in order to utilise the service.
Examples of brokers include:
- Caleb & Brown
- Independent Reserve’s OTC desk
- CoinSpot OTC
- Ainslie Wealth